Question

1. Accepting a special order is profitable whenever the revenue from the special order exceeds:

Multiple Choice

• The average unit cost of production multiplied by the number of units in the order.

• The incremental cost of producing the order.

• The materials and direct labor costs of producing the order.

• The fixed manufacturing costs for the period.

2.

Which of the following types of cost are always relevant to a decision?

Multiple Choice

• Sunk costs

• Average costs

• Incremental costs

• Fixed costs

3.  

A cost that has already been incurred and cannot be changed is called a(n):

Multiple Choice

• Opportunity cost.

• Out-of-pocket cost.

• Joint cost.

• Sunk cost.

Answer 1

Solution:-

1. Accepting a special order is profitable whenever the revenue from the special order exceeds:-

B. The incremental cost of producing the order

Explanation:-

Profit from special order will be calculates as follows-

Sales proceeds from special order	XXX
Less Incremental cost of producing the special cost	XXX
Profit / Loss of special order	XXX

Note:- Fixed cost will be consider as sunk cost assuming company have excess capacity.

2. Which of the following types of cost are always relevant to a decision:-

Incremental costs

Explanation:-

Incremental cost analysis will always consider as relevant for decision of accepting or rejecting an order.

3. A cost that has already been incurred and cannot be changed is called a(n):-

Sunk Cost

Explanation:-

A sunk cost is a cost that has already been incurred and that cannot be changed by any decision made now or in the future.

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